LOAN REQUEST Recently, Happy Jack came into the bank requesting a loan to refinance a hotel. Here's what Happy Jack had to say to his loan officer In 1995, my family purchased the SunSet Hotel in Cookeville with owner financing for a cost of $2,700,000. The Sunset Hotel has 80 units and an outdoor pool on about a five acre tract of land. When we purchased the hotel my father, Big Jack, put the hotel in his name but since has formed a company called Sleepy Jack, LLC and Mr. Jack transferred ownership of the real estate to the LLC. In 2001 my brother, Slap Jack, built a convenience store on the property and promised to pay rent when the store could afford to. My sister, Jiffy, does not work in the business but she is a lawyer and recommended our mother be the operating manager for the LLC. Since the hotel was originally built in 1983, many other hotels have located within a half mile of the Sunset Hotel. Many of the hotel owners have formed an association to encourage the area business leaders to host events and encourage activities that would bring people to Putnam County. The owners are also very competitive when approaching businesses to establish lodging contracts for various business clients. These clients will make up 50% of the hotel occupancy. Since I have graduated from the hospitality school 6 years ago, I have managed the Leadville Highlander Hotel in Colorado. I hope to, someday, be a hotel management consultant or to sing professionally if I can get far enough, or win, American Idol. However, I need to help my dad with some of his business arrangements since his recent health problems have become more of a concern. Well enough about me - The Sunset Hotel needs to refinance the remaining balance due to the high 10% interest rate that is currently being charged on the owner-financed loan. The current balance of $1,000,000 is all we owe but we would like enough money to fix up our facility and make some necessary Improvements at the same time; perhaps about $300,000 more. The improvements can be completed in 6 months if we had the money. The improvements would help increase our occupancy from 40% to maybe 60% and also raise our average room rates. I would like our payments to be no more than $12,000. I know we can make the payments since we have not missed a payment since we have owned the hotel and these payments will be less. We will also give you a first lien position on the hotel with the going rate to replace the hotel being over $50,000 a room. Please let me know as soon as possible. Thanks, Happy Jack LOAN REQUEST QUESTIONS Who is the Primary Borrower? Who should guarantee the note personally if all family members have equal ownership? What is the total amount of the loan request? What would you like to know about the individual guarantors? How many months would it take to amortize the total request if the rate is 6% and the payment is $12,000? Is that a reasonable amortization period based on the age of the hotel? What will be our collateral? How might we quickly determine a "ball park" value of the collateral? We often times appraise collateral based on three methods: income approach, cost approach, and sales comparison, Rank, in order, the "best" to "least" desirable approach that you would rely on. What might the customer do to the real estate and improvements that would make the hotel more competitive for the extra amount being considered? How will you know how the extra money is spent? Rather than just marketing to tourists, how else can the hotel attract business? What is the traditional cash flow for 2014 and 2015? (Show work) Can the hotel cash flow cover the $12.000 per month debt service for 2014 and 20157 [Show work) What is the Occupancy Rate, Average Dally Rate (ADR), and Revenue Per Available Room RevPAR) for! 20157 What would RevPAR be if occupancy went up to 60% and ADR was $357 What would the Gross Revenue be? (Show all work) OTHER FACTORS TO CONSIDER What was the Unemployment rate for Putnam Co. 7.8% 2012 2013 2014 USA 8.1% 7.4% 5.4% 5.9% 5.4% 4.8% 2016 4.7% What were the Sales Tax Collection Totals for: 2012 TN | 7 Billion | 7.1 Billion 7.5 Billion 7.6 Billion 8.2 Billion P utnam Co. 83,000,000 86,000,000 91,000,000 94,000,000 98,304,000 2014 2015 2016 What were the Retail Sales Totals for: 2012 2013 2014 2015 2016 (6 mos.) TN - 96.0 Billion 97.4 Billion 98.9 Billion 102.03 Billion 41.6 Billion Putnam Co. 1.4 Billion 1.4 Billion 1.43 Billion 1.46 Billion 591,280 Million What was the hotel/motel tax collection totals for Putnam County: 2012 $902,843 10.16% Increase 2013 $898,158 52% Decrease 2014 $1,060, 719 1 8.04% Increase 2015 $1,117,172 5.32% Increase 2016 $1,258,384 12.7% Increase What was the average fuel cost (per gallon) in the U.S.? 2012 $3.63 2013 $3.37 2014 $3.41 2015 $2.40 2016 $2.31 What was the Dow Jones Industrial average and the S&P 500 close at the end of S&P 500 YEAR 2013 2014 2015 2016 Dow Jones 16,576 17,823 17,425 19.763 1.848 2.058 2,043 2,239 Commercial property, land only, can be priced by the acre or sometimes, more practically, by the Often times, construction costs for hotels are considered by the What information about the hotel can the Franchise Office provide? How do we compare ADR, Occupancy, and RevPar for area hotels? What is the traffic count for: Interstate 40 43,436 to 51,324 (Approximately - depending on Cookeville Interchange) Willow Ave. 24,690 1-40 South to Humble Drive 22,426 1-40 North to Broad 16,076 Broad Street North to TTU Jefferson Ave. 22,776 1-40 South to Scenic Dr. 24,357 1-40 North to Jackson Street. What is more desirable - interior corridor or exterior corridor hotels? What brand of hotel would you consider your normal place to stay? How can you find out how many hotels and number of rooms are in Putnam County? Would you approve this loan as requested? If not, what would need to happen to persuade you to say "Yes" to this loan request? LOAN REQUEST Recently, Happy Jack came into the bank requesting a loan to refinance a hotel. Here's what Happy Jack had to say to his loan officer In 1995, my family purchased the SunSet Hotel in Cookeville with owner financing for a cost of $2,700,000. The Sunset Hotel has 80 units and an outdoor pool on about a five acre tract of land. When we purchased the hotel my father, Big Jack, put the hotel in his name but since has formed a company called Sleepy Jack, LLC and Mr. Jack transferred ownership of the real estate to the LLC. In 2001 my brother, Slap Jack, built a convenience store on the property and promised to pay rent when the store could afford to. My sister, Jiffy, does not work in the business but she is a lawyer and recommended our mother be the operating manager for the LLC. Since the hotel was originally built in 1983, many other hotels have located within a half mile of the Sunset Hotel. Many of the hotel owners have formed an association to encourage the area business leaders to host events and encourage activities that would bring people to Putnam County. The owners are also very competitive when approaching businesses to establish lodging contracts for various business clients. These clients will make up 50% of the hotel occupancy. Since I have graduated from the hospitality school 6 years ago, I have managed the Leadville Highlander Hotel in Colorado. I hope to, someday, be a hotel management consultant or to sing professionally if I can get far enough, or win, American Idol. However, I need to help my dad with some of his business arrangements since his recent health problems have become more of a concern. Well enough about me - The Sunset Hotel needs to refinance the remaining balance due to the high 10% interest rate that is currently being charged on the owner-financed loan. The current balance of $1,000,000 is all we owe but we would like enough money to fix up our facility and make some necessary Improvements at the same time; perhaps about $300,000 more. The improvements can be completed in 6 months if we had the money. The improvements would help increase our occupancy from 40% to maybe 60% and also raise our average room rates. I would like our payments to be no more than $12,000. I know we can make the payments since we have not missed a payment since we have owned the hotel and these payments will be less. We will also give you a first lien position on the hotel with the going rate to replace the hotel being over $50,000 a room. Please let me know as soon as possible. Thanks, Happy Jack LOAN REQUEST QUESTIONS Who is the Primary Borrower? Who should guarantee the note personally if all family members have equal ownership? What is the total amount of the loan request? What would you like to know about the individual guarantors? How many months would it take to amortize the total request if the rate is 6% and the payment is $12,000? Is that a reasonable amortization period based on the age of the hotel? What will be our collateral? How might we quickly determine a "ball park" value of the collateral? We often times appraise collateral based on three methods: income approach, cost approach, and sales comparison, Rank, in order, the "best" to "least" desirable approach that you would rely on. What might the customer do to the real estate and improvements that would make the hotel more competitive for the extra amount being considered? How will you know how the extra money is spent? Rather than just marketing to tourists, how else can the hotel attract business? What is the traditional cash flow for 2014 and 2015? (Show work) Can the hotel cash flow cover the $12.000 per month debt service for 2014 and 20157 [Show work) What is the Occupancy Rate, Average Dally Rate (ADR), and Revenue Per Available Room RevPAR) for! 20157 What would RevPAR be if occupancy went up to 60% and ADR was $357 What would the Gross Revenue be? (Show all work) OTHER FACTORS TO CONSIDER What was the Unemployment rate for Putnam Co. 7.8% 2012 2013 2014 USA 8.1% 7.4% 5.4% 5.9% 5.4% 4.8% 2016 4.7% What were the Sales Tax Collection Totals for: 2012 TN | 7 Billion | 7.1 Billion 7.5 Billion 7.6 Billion 8.2 Billion P utnam Co. 83,000,000 86,000,000 91,000,000 94,000,000 98,304,000 2014 2015 2016 What were the Retail Sales Totals for: 2012 2013 2014 2015 2016 (6 mos.) TN - 96.0 Billion 97.4 Billion 98.9 Billion 102.03 Billion 41.6 Billion Putnam Co. 1.4 Billion 1.4 Billion 1.43 Billion 1.46 Billion 591,280 Million What was the hotel/motel tax collection totals for Putnam County: 2012 $902,843 10.16% Increase 2013 $898,158 52% Decrease 2014 $1,060, 719 1 8.04% Increase 2015 $1,117,172 5.32% Increase 2016 $1,258,384 12.7% Increase What was the average fuel cost (per gallon) in the U.S.? 2012 $3.63 2013 $3.37 2014 $3.41 2015 $2.40 2016 $2.31 What was the Dow Jones Industrial average and the S&P 500 close at the end of S&P 500 YEAR 2013 2014 2015 2016 Dow Jones 16,576 17,823 17,425 19.763 1.848 2.058 2,043 2,239 Commercial property, land only, can be priced by the acre or sometimes, more practically, by the Often times, construction costs for hotels are considered by the What information about the hotel can the Franchise Office provide? How do we compare ADR, Occupancy, and RevPar for area hotels? What is the traffic count for: Interstate 40 43,436 to 51,324 (Approximately - depending on Cookeville Interchange) Willow Ave. 24,690 1-40 South to Humble Drive 22,426 1-40 North to Broad 16,076 Broad Street North to TTU Jefferson Ave. 22,776 1-40 South to Scenic Dr. 24,357 1-40 North to Jackson Street. What is more desirable - interior corridor or exterior corridor hotels? What brand of hotel would you consider your normal place to stay? How can you find out how many hotels and number of rooms are in Putnam County? Would you approve this loan as requested? If not, what would need to happen to persuade you to say "Yes" to this loan request